The Attractive Platform Strategy of Facebook, Amazon and Apple

by Christopher Meyer on 05/22/2010

What’s the most critical challenge facing CEO’s in 2010? According to 1,500 CEO’s interviewed for IBM’s 2010 Global CEO study, the answer is instilling creativity into their organizations. I’d suggest they consider creating an attractive platform that potentially accesses thousands of creative people from outside their organization.

By shaping their businesses around an attractive platform, Facebook, Amazon and Apple induce outsidersto contribute innovative products and services that extends their core businesses and improves customer experience. As you read the following three examples, keep in mind that the cost to each company was nearly zero.

In May 2007, Facebook was growing nicely but that growth accelerated sharply as they opened their site to third party developers. Within six months, users had seven thousand new Facebook applications. A year after launch, there were 33,000.

The same pattern holds true for Apple’s iPhone. The iPhone was introduced in June 2007 without any applications other than Apple’s. In the summer of 2008, the App Store launched and within a month, Apple sold 60 million applications. Today, there are well over 200,000 iPhone apps.

Starting in 2000, after reporting a fiscal loss of $1.4 billion, Amazon opened their web retail platform to Target, Toys R Us, Old Navy among others. Including these former “competitors” quickly became a win-win proposition. In July 2002, Amazon launched Amazon Web Services as a second platform.

Understanding Platforms

The platform concept started as a mechanism to reduce cost through reuse. Auto’s are a familiar example. An Audi A4 is a more dolled-up version of the Volkswagen Passat just as the Ford Ranger is the foundation for the Explorer. By reusing a high number of parts and processes across models, car companies reduce development, sourcing, manufacturing and service costs as well as speeding time-to-market.

A platform is a collection of modules – think Lego blocks. In contrast to a product based on distinctive craftsmanship such as a fine Swiss watch, platforms designs are broken into modules (e.g. powertrain, climate control and interior) with clear boundary conditions (e.g. engine mounting technology and clearances) and standard interfaces (e.g. connections for emission control computers). The same approach applies to software where the interfaces are API’s (application programming interface). API’s enable web browsers to draw from multiple sources to customize the content on your home page.

Good platform design increases creativity in two ways. First, by standardizing the interface and boundaries, less resources and testing are needed overall. Second, standardizations stimulates creativity because it allows one to do anything one chooses within the module itself. For example, two different disk drive manufacturers can use completely different combinations of motors, chips and media as long as they stay within the form factor and interface specifications.

Platforms benefit customers in that they lend themselves to customization, easy maintenance and lower service costs. Dell and HP provide web buyers with “configurators” that enable them to mix and match modular components when purchasing a PC. If one needs to repair, expand or update a system down the road, adding or replacing a new module is a no-brainer.

The Attractive Platform: Turning Platforms Inside Out

Facebook, Apple, and Amazon took the platform strategy of the auto companies and turned it inside out. By publishing their standard interfaces and performance requirements to the outside world, they enlisted the talents and creativity of thousands of application developers, merchants and even customers (e.g. Amazon reviewers). Whereas the evolution of the auto companies’ platforms are limited by their internal creativity, Facebook et. al. reach out to the entire world.

The strategic implications of an attractive platform are compelling.

Increase the number of creative minds and perspectives without adding headcount or operating costs.

Invite contributions from every customer, market, region or segment no matter where they are located.

Enable smaller but useful developments that would never become a top priority internally yet provide additional value.

Access a wider set of technologies than any one company can afford to develop and maintain.

Provide persistent and richer feedback signals to guide the evolution of the product, platform and overall business.

With the IBM CEO study in mind, let’s take a moment to drill down into #1 above. Many experts cite human capital as the critical competitive differentiator in the global, knowledge economy. Finding great employees is a tough challenge but finding creative talent is even harder. And that assumes you could hire them if you found them. Look at all the entrepreneurs who flee large companies like Cisco after their firms are acquired. Many creative folks don’t thrive in corporate settings. Plus if you can keep them, the normal socialization processes quickly dulls their uniqueness as they integrate into the corporate culture. Socialization chips off the points of these new stars until they become circles like everyone else.

Creativity thrives at edges and intersections between industries, cultures and technologies. An attractive platform reaches out to people in these positions and enables them to work with you without becoming employees. This is the essence of working wider: using creative strategies and structures to access the world’s talent and customers. Remember what Bill Joy said: there are more creative people outside your firm than in it.

An attractive platform doesn’t happen overnight. It’s a deliberate strategy that requires investment to design, launch, train and engage others in its use. To create the App Store, Apple had to define its policies, develop the Software Developers Kit (SDK) and integrate apps with iTunes. They had to allocate staff to manage and evolve each of these as they move forward.

Now that it’s opened the iPhone platform, Apple’s challenged to navigate a course that serves customers, app developers and themselves. For a company that’s historically been quite closed, this is new behavior and there will be missteps and adjustments. Recent examples include the dust ups over not supporting Adobe’s Flash tools on the iPad and concerns over the app approval process.

Platform developers incur responsibilities to the external community as the platform evolves over time. If those who choose to use your platform feel let down, abandoned or ripped off, they will depart. Therefore, it’s critical to recognize that launching an attractive platform is a strategic decision that impacts one’s business model. That’s why I use consciously use the “term” attractive. A good platform designer has to constantly frame choices and decisions relative to what’s attractive to platform stakeholders. Here are four factors to consider:

1. Compelling value proposition: The value for working with the platform and within its constraints must be greater than can be achieved independently.

Apple provides a software development toolset, sets the rules, approves every app and keeps 30% of the revenue. In exchange, application developers get their software in front of millions of iPhone users, set whatever price they choose and keep 70% of the revenue.

2. Clear customer purpose: The ultimate purpose of the platform is to enhance customer value; not enrich the platform’s creator or contributors.

Amazon kept the retail customers’ needs on top when they welcomed used book sellers to their listings despite the protests from mainstream publishers who didn’t want to be undercut on price.

3. Nurture the wider platform community: Invest in those who contribute by optimizing opportunity, minimizing cost and removing friction.

All the companies mentioned provide tools, developer conferences, and marketing support for developers who contribute to the platform. They also help users learn how to use and contribute as well.

4. Smart evolution: Platform evolution has to be managed carefully and collaboratively.

Apple iPhone developers have an easier task than Google Android developers when it comes to migrating to the next generation iPhone platform. Since Apple also controls the handset, hardware issues such as screen size differences can be minimized whereas Android developers have to deal with multiple handset manufacturer designs.

Based on the above examples, readers might think the attractive platform strategy applies only to Silicon Valley companies. Not so. The largest attractive platform by volume comes from commercial shipping. In the 1960’s Sea Lanes Malcom McLean created the shipping container, loading and locking technology. Containers are the large metal boxes that are lifted off the vessel and put directly on a truck headed to your local store. Rather than keeping his patents private, McLean made them available to other shippers so that they could use them and port operators had the volume to invest in loading and unloading equipment. Today, 90% of all non-bulk cargo moves by container.

Working wider starts with thinking outside the box. Working outside the box requires strategies and structures that transform ideas into practice. The attractive platform brings working outside the box to life.

This was a very interesting post on the platform concepts from these big companies. The auto mobile explanation is quite helpful for getting a better understanding of this concept. All these companies have created great platforms like Amazon’s AWS which has helped bring a lot of innovations in the cloud industry.

Why Working Wider?

Value creation has moved from the center of the firm to its edge and beyond. People are working and collaborating beyond home base to create value, including outside their firm. I call this phenomena "Working Wider". It dramatically changes the world of work, what defines leadership, how you compete and win.

We’re not just being challenged to think outside the box -- Now we’re working outside it as well.